Banking inquiry

Irish Nationwide’s former chairman Michael Walsh gives evidence

Colin Gleeson Wed, Sep 2
 
LIVE: Banking inquiry

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  • 09:24

    Good morning and welcome to The Irish Times’ live blog of today’s hearings at the Banking Inquiry.

    Silly season is officially over and the political establishment is moving back into full swing ahead of a budget in October and a General Election presumably sometime thereafter.

    The Banking Inquiry is currently ambling towards a conclusion with the end of the public grillings expected this month and the final report of the inquiry by the end of November – although there have been some suggestions of a delay.

    Funny, these things are normally so efficient.

  • 09:25

    My name is Colin Gleeson and I will be taking you through today’s evidence.

    The inquiry is due to hear from Irish Nationwide executives today. This includes an eagerly awaited appearance by the building society’s former chief executive Michael Fingleton. He is due to begin giving evidence at 9.30am.

    If you’d like to get involved, feel free to tweet me @ColinGleesonIT

  • 09:27

    Irish Nationwide, along with Anglo Irish Bank, is seen as one of the financial institutions that were in REALLY serious trouble before the Bank Guarantee was implemented in September 2008.

    It was a big player in commercial property lending in the years leading up to the financial crisis and collapse of Ireland’s banking system. According to the Central Bank, its commercial loans grew by €5.6 billion to €8.2 billion from 2004-2008.

    When the National Asset Management Agency (Nama) bought those loans in 2010, they were the most-heavily discounted of the debts it purchased from the five banks rescued under the scheme, indicating the properties against which they were secured were the most worthless.

    The inquiry has already heard how former minister for finance Brian Lenihan wanted to wind both Anglo and Irish Nationwide down on the night of the guarantee.

  • 09:28

    It is believed Mr Fingleton does not offer an apology for his role in the collapse of the institution in his prepared written statement.

    He is also expected to tell the committee that Irish Nationwide was solvent on the night of the guarantee and did not require a State bailout.

    Wouldn’t say that’s going to go down too well.

  • 09:30

    Mr Fingleton often courted the media and was no stranger to controversy throughout his career, but he attracted huge publicity as it came to an end.

    In 2009, he agreed to repay a €1 million bonus INBS had paid him the previous November.

    This was just two months after the government agreed to guarantee the banks, a move that ultimately led to the EU and IMF bailing out the State itself.

    At the time he agreed to do this, the government was attempting to stamp out the practice of banks paying hefty bonuses to executives and senior management that were supposedly tied to performance.

    However, while he pledged to repay the cash, he never did so.

    Shortly after the row over his bonus, INBS confirmed it had put in place a €27.6 million pension fund for Mr Fingleton, which he managed and which had been transferred out of the financial institution in January 2007.

  • 09:33

    Mr Fingleton ran Irish Nationwide Building Society (INBS) from 1971 until he stepped down in early 2009, after it emerged that the bank lost €464 million in bad property loans the previous year, leaving it €280 million in the red.

    By 2010, its losses had ballooned to €6 billion.

    INBS received €5.4 billion in taxpayers’ money to bail it out. It was ultimately folded into the State-owned Irish Bank Resolution Corporation (IBRC), along with the much larger Anglo Irish Bank, which was then wound up in early 2013.

  • 09:34
    Word on the street is that Mr Fingleton is going to really lay into the regulatory regime.  
  • 09:47

    After a short delay, we are up and running now.

    Mr Fingleton is delivering his opening statement.

  • 09:50

    He says Irish Nationwide refused to adopt 100 per cent home loans as a policy.

    Such loans were provided by the Society in “exceptional circumstances only”.

  • 09:59

    He says that in 2007, the building society was “fully aware of all the forecasts for a soft landing in general from the Central Bank, the Department of Finance, the OECD, the IMF, the ERSI, NESC, the EU Commission, as well as the banks’ economists, stockbrokers and academia”.

    He adds that “even forecasts provided by Professor Morgan Kelly” said it would be over a period of eight years, and that all institutions were well capitalised.

  • 10:05

    On the night of the Guarantee, Mr Fingleton says he understands that AIB wanted INBS to be nationalized together with Anglo.

    “There was no justification on the night for INBS to be nationalized as it had demonstrably adequate liquidity together with the benefit of the increase of the deposit protection scheme limit to €100,000 made on 20th September, which effectively covered 95% of the Society’s deposits,” he says.

    “It also had circa €1.5bn in capital on its balance sheet , equivalent to a capital adequacy ratio of 12%.”

  • 10:08
    Mr Fingleton has concluded his opening remarks by saying he “regrets” the problems that befell the Society’s customers and the burden that was placed on the Irish taxpayer and State in having to plug the hole.
  • 10:16

    Sinn Fein finance spokesman Pearse Doherty is questioning Mr Fingleton and unsurprisingly he is most interested in Mr Fingleton’s last comment.


    He wants to know, specifically, what Mr Fingleton regrets.


    “I don’t regret any decisions I took,” he begins, before adding that the Society had a “commercial loan book that was at the time too large”.


    “Whose fault was that?” Pearse Doherty wants to know.


    “I was part of the strategy, the operation and the decision to engage in commercial development,” replies Mr Fingleton.


    “You don’t regret that decision?” persists Mr Doherty.


    “I regret it now of course,” says Mr Fingleton. “At the time it was a normal commercial decision based on demographics, the environment and the market at the time.”

  • 10:22

    Now Doherty asks Fingleton can he explain the circumstances of the €27.6 million pension fund which he managed.


    Fingleton lets out a fairly large sigh and says “I’ll try deputy”.


    “In 1992, I looked at my pension fund, managed by an outside insurance company,” he says. “I discovered that if I invested all the contributions in the lowest paying deposit account, that would have produced more than what was produced by the insurance company.


    “So I agreed with the Society at that time that I would manage my own fund and invest the contributions that were provided by the society in that fund. So I made a decision from that time on, what to invest in, and the fund was of course administered by the trustees of that particular fund.


    “That’s the genesis of where it was charted and originated.


    “Over the years the funds build up to almost €30m. The net cost of that to the society was in my view almost nearer to €3m.


    “I increased that fund almost tenfold. You can appreciate that pension funds are very much discussed within your environment. You can appreciate what three or €4m would buy you today.”

  • 10:24

    No prizes for guessing what’s next on Doherty’s agenda.

    “Was there a bonus culture in Irish nationwide?” he asks.

    “No,” replies Fingleton.

    “So there were no bonuses paid?” asks Doherty.

    “There were bonuses paid," Fingelton replies. "You have to get so much done and you get a bonus if you achieve a certain target.”

    Glad he cleared that up for us.

  • 10:28

    He admits that his €1 million bonus was “excessive” and “wouldn’t be paid” today.

    “I didn’t determine my bonuses,” he adds. “That was done by the remuneration committee.”

  • 10:32

    Fingleton has told Doherty: “I don’t accept that there were poor lending practices”.

    The Society was “engaged in normal business” he says.

    Pearse Doherty’s time has run out, and he can’t reply, which is probably just as well.

  • 10:33
    He has also denied that he had total control over Irish Nationwide, saying the board had a say in lending decisions.
  • 10:34
  • 10:44

    Fine Gael TD Kieran O’Donnell has taken over the questioning.

    Fingleton tells us that the regulator sought a meeting due to concerns about a run on Irish Nationwide.

    Fingleton says he didn’t attend the meeting as he had “another engagement”.

  • 10:48

    O’Donnell wants to know whether Fingleton would like to “take this opportunity to apologise to the Irish people”.

    “I regret things fully and very very much,” says Fingleton. “I’ve already stated that.”

    “What would you have done differently?” asks O’Donnell.

    “In hindsight we all would have done things differently in our lives, and our business lives as well,” says Fingleton.

    “If we had stopped lending in 2006 instead of September 2007, we would have eliminated totally our commercial book.”

  • 10:50

    Now O’Donnell wants to know how remuneration was set up “for executives like yourself”.

    Fingleton says it was developed by the remuneration committee.

    “And the bonus?” asks a dissatisfied looking O’Donnell.

    “On basis of the performance of the Society in that given year,” replies Fingleton.

  • 10:57
    The committee is informed by chairman Ciaran Lynch that the issue of Mr Fingleton’s going away present of a watch is out of bounds for legal reasons.
  • 11:00
  • 11:03

    Mr Lynch also wants Fingleton to clarify that he “never authorised loans before they were approved by the board”.

    “Yes that’s right,” says Fingleton.

    “Were they ever given out without proper legal paperwork in place?” Lynch asks.

    Fingleton pauses.

    “I can’t say that in all instances all the paperwork would be on file,” he says. “But whatever was necessary or essential was always there.”

    He adds that “no security was compromised in relation to any loan”.

  • 11:15

    Labour senator Susan O’Keeffe has begun questioning Mr Fingleton now.

    She is asking him about the issues pertaining to the Society that were identified by the regulator.

    Fingleton says the inquiry had another building society in that had 76 issues identified by the regulator.

    “It’s not a competition Mr Fingleton,” says O’Keeffe.

  • 11:17

    He also says that he didn’t believe the meeting with the financial regulator was necessary.

    Apparently the financial regulator thought it was necessary but he didn’t.

  • 11:18
    They are now taking a 15 minute break.
  • 11:43

    And we’re back.

    Fine Gael TD John Paul Phelan is next to question Mr Fingleton.

  • 11:53

    Phelan asks Fingleton how many of the loans the Society approved came through him.

    “This is one of the myths that is still around,” replies Fingleton as he eerily echoes the evidence of Bertie Ahern.

    “No,” he says.

    “You refer to it a as a myth but it was a widely held view,” persists Phelan, who explains that he used to work in financial services and a view did exist “that you were Irish Nationwide”.

    Fingleton tells him that the regulator “misunderstood totally the powers that I had”.

    “I was suffering from the perception that was out there, that it was me and me alone, because I was seen as the face of the society,” he says.

    “I did promote myself and the society through PR. It was important to buy advertising space at the time. My picture was appearing in the paper day in day out for some sponsorship we had...”

  • 12:05

    Fianna Fail senator Marc MacSharry wants to know whether Fingleton went into business with, or had personal dealings with any of the Society’s borrowers.

    “I had a relationship with one,” Fingleton says.

    “Was it a politician?” asks MacSharry.

    “Yes,” he replies.

    “Do you want to tell the committee who it was?” continues MacSharry, possibly smelling a juicy headline in the offing.

    “No I don’t want to discuss it,” Fingleton says.

    Ah. Grand so.

  • 12:16

    Senator Michael d’Arcy wants to know (hypothetically) whether two financial institutions in a small jurisdiction like Ireland could create a property bubble.

    Fingleton initially says “no” and they both dance around the issue for awhile.

    “It would take a lot more than that unless the regulatory authorities interfered,” Fingleton adds eventually.

    D’Arcy asks about the view that the State won’t get any money back from Anglo and Irish Nationwide.

    Fingleton repeats that he doesn’t agree with the Nama discounts on the Irish Nationwide loan portfolio.

  • 12:21
    Having sat through many sittings of the Banking Inquiry, it seems one of the few certain things is that somebody somewhere has made a fortune running classes in how to stonewall a group of people over a period of several hours.
  • 12:22
  • 12:26

    Fianna Fail finance spokesman Michael McGrath is asking about the pension again.

    Fingleton says he has already been over this and won’t comment on it any further.

  • 12:31

    “Do you feel that you have been wronged?” asks McGrath, somewhat tenderly.


    “I feel, deputy, that I have been misrepresented,” he replies.


    “Seriously,” he continues. “Eighty per cent of what has been written about me is totally wrong, and ten percent is disputable. Maybe ten per cent is true. That’s where I leave it.


    “I most certainly do,” he adds.


    “Feel that you have been wronged?” asks McGrath, seeking to clarify.


    “Yes,” says Fingleton.


    There is a long silence.

  • 12:35

    McGrath again queries the perception that Irish Nationwide was Fingleton’s “personal fiefdom” and that he “called all the shots”.

    “Totally untrue,” Fingleton replies. “As evidenced by my continued insistence that the board be totally involved in the approval of loans within the Society.

    “No board of any other institution was involved in the approval of loans. Some individuals in other institutions had lending powers far in excess of what I had.”

  • 12:39

    Joe Higgins’ turn has come.

    He spends a fair few minutes outlining a question and when it finally comes to Fingleton to issue a reply, he asks what the question was again.

    “Sorry I just lost track,” he says.

    There are audible sighs from the committee members who have seemed really unimpressed at several junctures of Mr Fingleton’s evidence.

  • 12:41
  • 13:02
    Fingleton says his relationship with the regulator was healthy and that he “respected” him.
  • 13:20

    Chairman Ciaran Lynch, who rarely gets upset during these proceedings (being the chairman and all), is having a bit of a go.


    “You were chief executive from 1971 to 2009 and had ultimate executive responsibility for the Society during this period,” he begins.


    “However, from the evidence here today, you would appear to have excused yourself from many of the key decisions that were made during your time.


    “Could you please explain to the committee why you believe INBS has ended up costing the taxpayer €5.4bn and what personal responsibility do you claim?”


    Mr Fingleton is discombobulated again. He asks Mr Lynch if he can repeat the question as he has “lost track”.


    Lynch begins to repeat the question but it’s all come back to Mr Fingleton and he cuts him off.


    “All I’ll say chairman is that you have implied I haven’t answered the question,” he says.


    “I said you appear to have excused yourself from many of the key decisions,” retorts Lynch.


    “I have not excused myself from anything,” replies Fingleton. “I have merely answered the questions as best I can.”


    “Can you explain to the committee why INBS has ended up costing the taxpayer €5.4bn and what personal responsibility do you claim?” repeats Lynch.


    “Simply, chairman,” says Fingleton, “because we failed to reduce our commercial loan book sufficiently. We had too much of these loans on our book at the time the crisis happened. That’s why we lost that much money.”

  • 13:24

    Fingleton has repeated his claim that Irish Nationwide was solvent on the night of the bank guarantee.

    “As the market evolved, we were extremely solvent,” he continues. “We had €1.5bn of capital. After the audit of 2010, we still had €1.2bn in capital and nearly 4bn in assets.”

  • 13:28

    Kieran O’Donnell asks him whether he is aware of the book Fingers: The Man Who Brought Down Irish Nationwide and Cost Us €5.4bn by Tom Lyons and Richard Curran.

    “I’d prefer not to discuss that book because there are at least 20 libels in it,” he says. “Be careful.”

  • 13:32

    “Did you know best?” asks O’Donnell, referring to Irish Nationwide.

    “No,” says Fingleton. “I was ceo, I gave my opinion. The board gave their opinion and we did the best we could.”

  • 13:39

    “Do you feel that you have been wronged?” McGrath asked earlier.


    “I feel, deputy, that I have been misrepresented,” he replied.


    “Seriously,” he continued. “Eighty per cent of what has been written about me is totally wrong, and ten percent is disputable. Maybe ten per cent is true. That’s where I leave it.


    “I most certainly do,” he adds.


    “Feel that you have been wronged?” asks McGrath, seeking to clarify.


    “Yes,” says Fingleton.


    This was followed by a long silence.

  • 13:40

    God loves a tryer and O’Donnell wants to know what ten per cent of what was written about Fingleton he believes was true.

    Shockingly, Fingleton ducks the question.

  • 13:43

    That brings to a conclusion what has been a master class in absolvement of blame.

    Ciaran Lynch asks Mr Fingleton if there is anything else he would like to say.

    “Thanks for the courtesy chairman and thank you to the members for the opportunity.”

    The committee was “tough but fair”, he adds.

  • 14:03
  • 14:27

    Up shortly will be Irish Nationwide’s former chairman Michael Walsh (2.45pm).


    Walsh will be asked to give evidence on a number of lines of inquiry, including the appropriateness of credit policies, property-related lending strategies and risk appetite.


    Other lines of inquiry include the liquidity versus solvency debate, the appropriateness of the bank guarantee decision, the decision to recapitalise Irish banks, and the appropriateness and effectiveness of the regulatory regime.

  • 14:29
    Mr Walsh was a director of INBS from 1995 and Non-Executive Chairman from 2001 to 2009.
  • 15:00
    Still waiting to them to return. Would be nice if they would at least inform us when they are going to be late (which is pretty much all the time).
  • 15:11

    And we’re back.

    Mr Walsh is delivering his opening statement.

    He says he “truly regrets” the events that led to the banking crisis in Ireland.

    “It is clear, both from the evidence that has been provided to the inquiry so far, and indeed the systemic nature of the crisis, that none of the financial institutions, none of the Central Bank, the Financial Regulator or the Department of Finance and none of the economic bodies fully appreciated the significance of the global credit bubble and the consequential bubbles, particularly in the property and structured credit markets.

    “This was equally true in the US where the two major quasi government agencies in the housing finance sector failed.

    “I do not dispute that much of the criticism that has been levied at the Irish financial institutions, including the Society, is merited. The Society played its part in the crisis.

    “However, the version of events portrayed by some is not supported by the facts nor my own experience as Non-Executive Chairman. I am concerned that the popular depiction of the Society as being in the poorest financial health of all institutions at the time may hinder the Inquiry and the public understanding of the real issues at play.

    For example, at no stage did the Society advocate a guarantee for bond holders; because of its liquidity position, the Society was not reliant on new bond issues, so this would not have been important to it.”

  • 15:16

    He says INBS was “the first of all the Irish lending institutions to anticipate and respond to the changed market circumstances in late 2007”.

    “As Non-Executive Chairman I believed that the Irish banking system was over exposed and immediate retrenchment was required,” he says. “On my initiative, the board decided to minimise lending and build liquidity.

    “The regulator was, however, left in no doubt of the Society’s deep concern at the threats which were emerging to the banking system in Ireland.

    “While the Society had decided to effectively cease lending and build liquidity, I was convinced that regulatory leadership was required to ensure broader action across all financial institutions. That leadership never came.

    “At a meeting in early May 2008 with the Financial Regulator, and his senior staff, I used the opportunity to present, both orally and in writing, my recommendations for what I thought needed to be done to save the Irish financial system.”

  • 15:18

    If the regulator thought he got off easy with Fingleton, he did so too soon.

    Mr Walsh is heavily critical.

    “I believe that the Society acted responsibly by taking that decision in December 2007,” he says. “It is a matter of deep regret for the Society, and very much more importantly for the Irish taxpayer, that it is now apparent that the Central Bank and regulatory authorities, despite having what sounds like serious misgivings as to the stability and sustainability of the Irish banking system as early as 2006, failed to effectively bring those concerns to the attention of the Irish financial institutions that it was tasked with overseeing.”

  • 15:23

    He even defends Fingleton, who must be thinking this hasn’t been a bad day at the office for him.

    “Despite what is now often inferred, the Central Bank and the regulator had absolute power under the 1989 Building Societies Act to remove any director/executive in a Building Society,” says Walsh.

    “This was a power they did not have in the banks. Yet, whereas Michael Fingleton has been criticised by many, at no stage did the Central Bank or the regulator ever suggest to me as Non-Executive Chairman that they wanted him removed.

    “On the contrary, in my view, they saw him as effective and key to the proposed trade sale.”

  • 15:25
    He says he “cannot understand how, even with the benefit of hindsight, various witnesses have been able to claim, with apparent certainty, that the Society was insolvent in September 2008”.
  • 15:36

    Labour senator Susan O’Keeffe has now begun to question Walsh about how Fingleton has been portrayed over the years.

    “If you think of him as being the Michael O’Leary of the day,” says Walsh. “Both very entrepreneurial, not necessarily cuddly people...but very strong people”.

    Yeah, quite sure I wouldn’t be crossing the road for a cuddle from either of them.

    Walsh also says Fingleton was “absolutely the face of the society”, which was “valuable” for it.

    The media coverage he tended to attract was “all effectively beneficial” for the Society.

  • 15:48

    Walsh has dropped in another “with the benefit of hindsight” comment.

    If the committee had a few bob for every time they’ve heard that phrase, they might be able to recoup what went into the banks.

    Well, perhaps not.

    They’d need €64 billion.

  • 16:05
  • 16:10

    Committee chairman Ciaran Lynch asks “was Mr Fingleton a domineering person and did he dominate the board”.

    “He had a strong personality,” says Walsh. “He used that personality to build a business from scratch.”

    There is another reference to the “Michael O’Learys of this world”.

    “Just because people are colourful characters doesn’t mean they ignore the board,” says Walsh.

  • 16:24

    Fianna Fail senator Marc Mac Sharry wants to know if he thinks the financial regulator or the Central Bank “unfairly fingered Irish Nationwide as a misbehaver”.

    “I would not have had that view at the time,” says Walsh. “I would have understood when they had what I would call regulatory concerns, and also when they became more seriously concerned. Whenever there was something serious, I would meet with them.”

  • 16:40

    Walsh says he can’t recall when stress tests were carried out or not carried out, but concedes there should have been more of them.

    That being said, had there been more, the Society would have “passed them with flying colours”.

  • 16:51

    Senator Sean Barrett is asking about the 56 recommendations Irish Nationwide received from the regulator.

    “Right through the decade, Irish Nationwide seems to have been the most difficult of the institutions for the regulator to deal with,” he says, before adding there is a “mountain of evidence to support this”.

    Walsh says he finds it “hard to relate to that” particularly as it he himself was the one in regular meetings with the regulator.

  • 16:54

    The question of the Society’s solvency on the night of the Guarantee is again centre stage.

    Walsh says Irish nationwide was “absolutely solvent” on the night in question and that a “very clear email” was sent to the Department of Finance to that effect.

    It said the institution “had €3bn in cash, outflows were €30m, and in the context of where they were that night, there may be a need to have a contingency plan for December of 2008, but it may not be necessary”.

  • 17:13

    Brendan McDonagh, a director at the NTMA, which is the State’s treasury agency, gave evidence to the Inquiry that Anglo Irish Bank and Irish Nationwide (INBS) were “broken institutions”.


    Mr Walsh is asked what he thought of this evidence.


    He says he is absolutely astonished with it, particularly as it was Mr McDonagh, who is also the chief executive of Nama, who sent the aforementioned email to the Department of Finance which stated that everything was grand.

  • 17:17

    Fine Gael senator Michael D’Arcy wants to know whether Anglo and Irish Nationwide were involved in creating the property bubble.

    Walsh says Irish Nationwide had “no role in creating the bubble”.

  • 17:44

    Kieran O’Donnell is talking about the bailout.

    Walsh says he “absolutely” disputes that the figure Irish Nationwide received was €5.4bn.

    “Under any reasonable assessment, the deficit could not have been that high,” he says.

  • 18:24

    We are close to wrapping up, and Senator Susan O’Keeffe is asking why Mr Fingleton did not retire when he reached 70 years of age, as per the Building Societies Act.

    Walsh says the Society was in reverse at that stage and trying to rein things in.

    “Who is the best person to drive that?” he asks. “I was of the view, the board was of the view, and the regulator was of the view that he was right to lead it.”

  • 18:34

    That brings Mr Walsh’s evidence to a conclusion.

    By way of closing remarks, Mr Walsh tells the committee that he “deeply regrets” what happened to the economy.

    He further advises the committee to frame their recommendations around avoiding a repeat of the situation which developed whereby different stakeholders simply were not communicating with each other.

  • 18:39

    Thanks for joining me today.

    Just the two and a half hours over time for the committee on this occasion.

    I will be back bright and early in the morning to bring you another live blog of the Inquiry, with executives from Anglo Irish Bank due to give evidence. They are to get underway at 9.30am.

    For reports and analysis on today’s hearings, see irishtimes.com and tomorrow’s newspaper.